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Crash Warning

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Regular readers of my work know that I have been outlining (and warning people about) two potential economic scenarios; as the West’s terminally-ill economies lurch towards their final collapse. These hollowed-out, debt-saturated economies would (will) either crash under the weight of their own insolvency; or our governments will create a hyperinflation death-spiral -- in a last desperate attempt to avoid that bankruptcy event.

While both paths represent utter, economic suicide; the road to ruin is much different in these two scenarios. This has severely limited the investment options and strategies for any prudent investor. Forced not only to “play defense” with our investing but to prepare for two more-or-less opposite events has made precious metals the one asset class which can protect investors from either of these fates.

I’ve explained on multiple occasions in the past why precious metals will outperform other asset classes in both a debt-default crash or hyperinflation-spiral scenario. The purpose of this piece is not to repeat that analysis, but rather to point out that as of this moment the “crash” scenario has become not only the most likely scenario, but an imminent event.

For those who have been paying attention recently as the West plummets deeper into Depression and the global economy teeters; the news that came out today was enough to send shivers down one’s spine. On a single day we hear that Europe’s interest rates have descended closer to the zero-percent graveyard already occupied by Japan and the U.S.; China has slashed its own interest rates again; and the (ridiculously inflated) U.S. “ISM” service sector measurement has reached its lowest level in 2 ½ years.

Each of these news items has dire implications, and so I’ll spend a moment dissecting each of them. As I have detailed in past commentaries, any fiat-currency produced at zero cost (i.e. with interest rates set at 0%) is worthless as a basic tautology of logic and arithmetic. There can be no possible debate or equivocation here. Just as with the yen and the USD, the euro now lurches much closer to the same worthless status.

Meanwhile we see China, the growth-engine of the 21st century global economy, again lowering its own interest rates. With China’s 1-year deposit rate on the renminbi now set at 3%, while the 1-year lending rate is now at 6%; China’s interest rates are still sane (unlike the West) – and it’s own paper is not (yet) officially worthless. However, China’s latest cut in its interest rates signals another deeply disturbing aspect to the economic carnage created by the reckless/greedy/incompetent Western banking cabal.

What most other economic commentators still totally fail to grasp is that the terminal, economic death-spiral in which virtually all Western economies are now trapped bears absolutely no resemblance to any other deflationary collapse in the limited experience of these pseudo-experts. In a “normal” deflationary episode, by definition the value of the currency in circulation rises. This makes that currency an effective “safe haven”.

Similarly, in previous deflationary episodes when our economies were still solvent, bonds also represented a safe haven: loaning money to the most reliable debtors, sovereign governments. Neither of these parameters exists today.

As Western economies accelerate toward their debt-default crash (i.e. bonds going to zero), we see inflation raging all around us (i.e. currencies going to zero). “Official” numbers on inflation have become such absurd lies that they are now entirely irrelevant numbers. In the real world, inflation is now a double-digit plague in virtually every economy – and cutting interest rates stokes that inflation still further. Worse, because inflation (by definition) is the destruction of our purchasing power; such crippling inflation causes the collapse of these hollowed-out economies to accelerate. Thus we have a world where inflation and insolvency can and are simultaneously worsening.

 

While Europe and China are stoking the inflationary side of this economic nightmare with their interest rate cuts, simultaneously we get more terrible news out of the world’s great, economic black-hole: the U.S. economy. While absurd statistical lies have transformed the U.S.’s Greater Depression into an “economic recovery” for the past 3 years, the short-term benefits of this propaganda campaign come at a terrible price.

Deluded Americans who should have spent the last three years bolstering non-existent savings and paying down their extravagant debts have instead done the opposite: they have stopped saving, while once again piling on more debt which they have no hope of servicing over even the medium term.

As usual, our greatest condemnation must be reserved for the mainstream media, a corporate propaganda machine which is entirely owned by a handful of Oligarchs. To protect the paper-empire of the felonious banking cabal, we have been fed an endless diet of “don’t worry, be happy” tripe from the shameless shills employed by these Oligarchs.

News from the U.S. economy has been totally unequivocal, once realistic numbers on inflation are used to translate the economic fiction distributed by the U.S. government. Manufacturing has collapsed. The housing sector remains mired in the worst depression in U.S. history, and saturated with mortgage-fraud there is no prospect of this market healing during our lifetime.

Several months of terrible retail sales numbers are being accompanied by a marked sag in the official readings for the U.S. services sector. With consumption directly or indirectly accounting for well over 80% of the U.S. economy; each percentage-point drop in this sector of the economy translates almost point-for-point into a decline in GDP. While the crippled economies of Europe at least attempted (suicidal) “austerity”; the U.S. economy is drowning in such extreme levels of debt that its cowardly two-party dictatorship has refused to even attempt to control the exponential explosion in U.S. debt.

The U.S. economy is nothing but a credit card which is past the point of being “maxed-out”. The ludicrous notion that the U.S. can “print” its way out of insolvency is nonsense, for (among many) a reason which I’ve already provided: the U.S. dollar is already totally worthless. As a basic proposition of arithmetic, worthless paper cannot mitigate insolvency. However trying to do so is how governments produce hyperinflation.

It is the act of attempting to ward-off bankruptcy by printing ever larger mountains of (worthless) paper currency which has always been the catalyst for hyperinflation; as such extreme/reckless conduct shatters the final delusion of the Sheep that this worthless paper actually has value.

The analogy of a government which claims it can ward-off insolvency with a printing-press is a simple one. It is identical to the Deadbeat who assures a creditor that he can “resolve” the problem when one of his bad-cheques “bounces” by simply writing another (bad) cheque. It doesn’t matter if the Deadbeat writes one more bad-cheque or a million; none of his debts can be reduced, let alone repaid.

So it is with Deadbeat Governments claiming they can “pay their bills” by simply printing more and more and more and more paper. It is not a question of “if” the Sheep finally and totally reject all of this fiat-paper. The only question which remains is how many months until this occurs?

Understand that during the Panic of the crash which looms ahead of us that it is entirely possible that the (nominal) prices of our precious metals assets (whether bullion or the shares in the miners) could decline still further. This must not deter us, and above all we must not attempt to become “traders” in this extreme/insane environment.

Those (amateur) investors who naively believe they can trade in and out of such markets overlook one, gigantic variable which can (will?) destroy them. As our economies collapse it is inevitable that both our banking system and markets will be forced to shut down – likely for extended periods.

Those who sell their precious metals assets for the bankers’ “magic beans” (i.e. fiat paper currencies) risk being caught holding that paper when our banks and markets are closed. By the time the financial system re-opens there is the very real possibility that any/all paper in their possession will no longer have any value whatsoever. Instead of prospering through their trading, such people can/will annihilate themselves financially.

Understand that what looms ahead of us is an economic cataclysm more severe than anything we have even read about in our history books, let alone experienced in our own lives. Understand what it means to “play defense”, and do so now – before it’s too late. Seats still remain in the Financial Lifeboats known as gold and silver, but the Titanic is sinking fast and the party is over.

 

 


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Jeff Nielson
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written by Jeff Nielson, August 03, 2012
I was definately in the boat of taking on more and more debts before I woke up...I got out of all debt other than a low mortgage which is next, while of course stacking and (particularly now, WHAT A DEAL!) miner buying.


Congrats Kmunk! There's a really simple principle here: you don't try to participate in a scam if you're not one of the OPERATORS of that scam. Ordinary people will have absolutely no say in who gets "Debt Jubilee" and who ends up with debt-slavery. So we don't put ourselves in the position where we are at the "mercy" of people who have none.

Gerald Celente thought HE could trade in the bullion futures market like the Bankers. He woke up one morning to find out his account had been cleaned out (with the plundering of MF Global).

"Playing defense" means eliminating our vulnerabilities. YES, we MIGHT pass up some "easy money" along the way, but we are CERTAIN of avoiding our own self-destruction.
Kmunk
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written by Kmunk, August 03, 2012
There is Debt Jubilee for (only) our governments, our banks, and (selected and well-connected) other Corporate Oligarchs. For everyone else their debts are LOCKED-IN at 100 cents on the dollar. Then right AFTER the Fascists give THEMSELVES Debt Jubilee, they back our now debt-free currencies with GOLD: this preserves the FULL VALUE of all our debts.


I woke up to this idea several years ago, glad to see others have too. And I was definately in the boat of taking on more and more debts before I woke up.

The bankers run the show, they instituted paper to (mostly) do two things: take the gold (and silver) out of the general public's use/hands and load the general public with debt.

BUT, I am sure they are well aware of debt being paid back in ever decreasing valued paper doesn't make sense, fiat monetary systems always eventualy collapse and hyperinflate... In short, the peasants are getting too much of a "good deal".

Once debt saturation is running near 100 percent, the public gold hoist is complete, and "we buy gold" shops close down since no one owns any real jewelry anymore, you can be sure the monetary unit will be backed once more by gold and those "pretend" debts just became "real"... with a likely deflation against gold to boot.

Think I broke out in a cold sweat at the time I came to the realization.

I got out of all debt other than a low mortgage which is next, while of course stacking and (particularly now, WHAT A DEAL!) miner buying.
Jeff Nielson
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written by Jeff Nielson, July 12, 2012
Congratulations on being published at Lew Rockwell.com, Jeff!


Thanks DayOwl! It's both gratifying and exciting to see my work recently drawing a lot more notice - from fans and critics (lol)!
DayOwl
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written by DayOwl, July 12, 2012
Congratulations on being published at Lew Rockwell.com, Jeff!
Jeff Nielson
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written by Jeff Nielson, July 09, 2012
Jeff;
This is exactly the scenario I have been preparing for. It is unfolding right before our eyes, and with insight from observers like you, it's like watching a movie in which you know all the scenes as they play out.
I also agree with the timetable of "months", not years as some others propose.
Right now, yields, in absolute terms, are negative in Germany, France, and the US.
In real terms, they are negative in much of the world.
QE3, and non stop money printing is the only way for them to make the patient appear to be alive.
Given all we know, I need further explaination regarding why you feel PM prices might actually come under pressure in this scenario. I would think that global demand for physical would soar as people see this Ponzi scheme collapse.


Bobbbny there was two points I wanted to comment on. First, with respect to your general comments of feeling like you're in the middle of a Greek tragedy comes from two causes:

(1) The assumption of status quo. The masses ALWAYS have a strong belief that whatever happened yesterday and today MUST also happen tomorrow, so on that basis alone they are highly resistant to messages that "change is coming".

(2) The illusion of change. People read about events in their history books (which stretch over years/decades) and ASSUME that if we were experiencing some sort of similar cataclysm that they should be able to "see it coming" (in real-time). They don't understand that what is "obvious" with the benefit of historical hindsight is NOT "obvious" to people resistant to any change (in the first place), and in real time.

It's really necessary for people to have developed their capacity for logic to the point where they are capable of grasping "the big picture"; because once ANYONE gets an informed glimpse of the economic nightmare brewing today; they know their only recourse is duck-and-cover (i.e. protect one's self with gold and silver).

Regarding your question: in ANY panic situation the Sheep become even MORE susceptible to propaganda, and being led by the nose. So despite the fact that metals prices SHOULD rise in any/all panic scenarios, the ability of the bankers to produce perverse outcomes in markets is ALWAYS enhanced by panic.
bobbbny
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written by bobbbny, July 09, 2012
Jeff;
This is exactly the scenario I have been preparing for. It is unfolding right before our eyes, and with insight from observers like you, it's like watching a movie in which you know all the scenes as they play out.
I also agree with the timetable of "months", not years as some others propose.
Right now, yields, in absolute terms, are negative in Germany, France, and the US.
In real terms, they are negative in much of the world.
QE3, and non stop money printing is the only way for them to make the patient appear to be alive.
Given all we know, I need further explaination regarding why you feel PM prices might actually come under pressure in this scenario. I would think that global demand for physical would soar as people see this Ponzi scheme collapse. Yes, I know the power of the manipulaters, but I don't think they could remain in control of price under total collapse.
Thanks.
Jeff Nielson
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written by Jeff Nielson, July 09, 2012
I have done a bit of reading on Amerman's outlook on finance. He applies more to the US where you can deduct mortgage interest and such. But his theory involves apying off debt with benefit of the inflation. Provided you can preserve (and increase) wealth through currency devaluation/inflation.


Zooey, there are SECERAL problems with such theories. To begin with, we have falling REAL wages (i.e. wages measured in real dollars). It's IMPOSSIBLE to improve one's fiscal/financial position via inflation when your debts are compounding (from interest) while your wages are steadily declining.

In other words, IF we got enough inflation to dramatically reduce the real value of one debts over the short term, the collapse in purchasing power as his WAGES went to zero would more than negate any benefits.

It is IDIOTIC to try to prosper through the approaching cataclysm by continuing to base your finances in PAPER. This is a Ponzi-scheme designed to STEAL all of our wealth. Ordinary investors who think they can beat the banksters at their own game are living in a Fool's Paradise.
Jeff Nielson
...
written by Jeff Nielson, July 09, 2012
There is Debt Jubilee for (only) our governments, our banks, and (selected and well-connected) other Corporate Oligarchs. For everyone else their debts are LOCKED-IN at 100 cents on the dollar. Then right AFTER the Fascists give THEMSELVES Debt Jubilee, they back our now debt-free currencies with GOLD: this preserves the FULL VALUE of all our debts.

ok CORRECT ME HERE: You have $1000 in fiat debt; but also you have 20 oz in gold. AFTER; your debt is still $1000; however the gold you bought at $1000 is now worth (in purchasing power) say $12,000. Is this not beneficial? You pay back the $1000 you contracted for at 1/12 the cost?


Hi Zooey.

Yes, I fully agree with your reasoning. When I talked about the Average Person getting screwed by Debt Jubilee, I was referring to their DEBTS - since the Average Person tends to be loaded with debt.

But in ANY scenario bullion prices must rise, and (long-term) bullion must be the best vehicle to protect ourselves from ALL of these contingencies.
zooey
...
written by zooey, July 08, 2012
I have done a bit of reading on Amerman's outlook on finance. He applies more to the US where you can deduct mortgage interest and such. But his theory involves apying off debt with benefit of the inflation. Provided you can preserve (and increase) wealth through currency devaluation/inflation.
zooey
...
written by zooey, July 08, 2012
I mean if Canadian dollar now devalues that does not change the dollar value of my original debt of $1000. Does not depend on purchasing power. Still a grand.

My gold I sell 1 oz. and pay off the debt and still walk with a profit????

My point is the debt contracted for was $1000. Does not include clauses in loan agreements that cover any devaluations of currency. 1000 is 1000.
zooey
...
written by zooey, July 08, 2012
JEFF:

There is Debt Jubilee for (only) our governments, our banks, and (selected and well-connected) other Corporate Oligarchs. For everyone else their debts are LOCKED-IN at 100 cents on the dollar. Then right AFTER the Fascists give THEMSELVES Debt Jubilee, they back our now debt-free currencies with GOLD: this preserves the FULL VALUE of all our debts.

ok CORRECT ME HERE: You have $1000 in fiat debt; but also you have 20 oz in gold. AFTER; your debt is still $1000; however the gold you bought at $1000 is now worth (in purchasing power) say $12,000. Is this not beneficial? You pay back the $1000 you contracted for at 1/12 the cost?
Jeff Nielson
...
written by Jeff Nielson, July 07, 2012
Makes sense... although one part of that I do not understand... what if the US gold reserves no longer exist? Can they still back the currency with gold after, I assume, a revaluation to $10,000/ounce or so...?? Does there not need to be an exchange component to the "backing"? And if one holds gold in your scenario, they win, right? If I want to hold some amount of cash, what do you think about holding it (for the time being) in Aussie dollars? Do you agree with Rogers that agricultural commodities may do really well in the upcoming turmoil? Thanks, Jeff!


TusconJJ, part of the reason why my last reply didn't (entirely) compute was that you're living in the past. It's already been clearly telegraphed that the NEXT "reserve currency" will be China's renminbi - and China clearly IS looking to accumulate enough gold to back it.

As for the second part of your comment, I certainly have respect for the views of Jim Rogers, and EVENTUALLY other commodities are going to do really well. The problem is that other commodities do NOT have a monetary function - and so they will NOT do as well in the debt-default scenario looming ahead.

AFTER we are past that and the growth cycle of the developing world resumes, then so will the GENERAL bull market in commodities. But there is a LOT of "darkness" to pass through between now and then...

P.S. As for the reference about Aussie dollars, why BOTHER holding any paper simply because it's SLIGHTLY less worthless? ALL paper is ravaged by inflation. Holding paper means CHOOSING to lose wealth. Period.
Tucson JJ
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written by Tucson JJ, July 07, 2012
Makes sense... although one part of that I do not understand... what if the US gold reserves no longer exist? Can they still back the currency with gold after, I assume, a revaluation to $10,000/ounce or so...?? Does there not need to be an exchange component to the "backing"? And if one holds gold in your scenario, they win, right? If I want to hold some amount of cash, what do you think about holding it (for the time being) in Aussie dollars? Do you agree with Rogers that agricultural commodities may do really well in the upcoming turmoil? Thanks, Jeff!
Jeff Nielson
...
written by Jeff Nielson, July 07, 2012
YOWZER!! Hey, Jeff, what are the chances of a worldwide "debt jubilee"? What would it do to gold prices? Seems like just the thing the crooks would love, and since they own the politicians and courts...


TusconJJ, Debt Jubilee has already started: that's what happened in Greece. And as I've suggested myself in comments to previous pieces, I'm ALSO totally terrified of precisely WHAT "Debt Jubilee" will mean - while our criminal Fascist governments remain in charge. Try this scenario on for size:

There is Debt Jubilee for (only) our governments, our banks, and (selected and well-connected) other Corporate Oligarchs. For everyone else their debts are LOCKED-IN at 100 cents on the dollar. Then right AFTER the Fascists give THEMSELVES Debt Jubilee, they back our now debt-free currencies with GOLD: this preserves the FULL VALUE of all our debts.

This is why ANY time I see some smug individual saying they are going to rack-up huge debts and just wait for them to be wiped-away by hyperinflation or a debt-jubilee that I tell such idiots to give their heads a shake.

They PRESUME we live in a fair world where the Big and the Small are/would be treated equally. That world hasn't existed for many decades...
Tucson JJ
...
written by Tucson JJ, July 07, 2012
YOWZER!! Hey, Jeff, what are the chances of a worldwide "debt jubilee"? What would it do to gold prices? Seems like just the thing the crooks would love, and since they own the politicians and courts...
Jeff Nielson
...
written by Jeff Nielson, July 05, 2012
Jeff, is your useage of 'Oligarch' as in Stalin and his commie thugs, or Hitler and SS. Both were "Socialist". Gerald Celente talks about Fascism currently taking over everthing, the merger of cronie government with bankers and corporate elites". I believe this process began with LBJ, and the American Republic(real democracy and capitalism) died 25 years ago


Paxjds, you did a great job of highlighting precisely why I despise the use of ideological labels. As you point out, both Hitler's regime and Stalin's regime were officially "Socialist", while the ARISTOCRACY at the top lived like Kings and the PEASANTS lived in terror.

Similarly, Western governments today are referred to as "democracies". What do we see with the U.S. "democracy"? Two different flavors of Oligarch-servants compete to see which can serve the VERY WEALTHY the best (i.e. the top-1%).

In Greece, it's clear that the Greek people will NEVER be able to vote in a government which will represent the PEOPLE. Rather, the bankers will simply force election after election until a government is elected which SERVES THEM.

Things are little different in Canada. Our own would-be Dictator (and U.S. lap-dog) has demonstrated his complete contempt for democracy on several occasions already.

He did it the first time when he tried to OUTLAW all public financing for political campaigns - so that the wealthy (and large corporations) could literally BUY the government of their choice in every election. And as the political party which SERVES the wealthy and large corporations, that would make Harper President-For-Life.

The second time he showed his contempt for democracy was when he ILLEGALLY suspended Parliament in order to prevent the OTHER political parties from voting IN a different (majority) government - and voting OUT Harper's minority.

Then this Dictator had the audacity to engage in a MASSIVE advertising/propaganda campaign where he depicted the OPPOSITION parties as being "undemocratic" - for having the audacity to want to VOTE against him.

Real "socialism" doesn't exist in the world any more than real "democracy" exists. The sooner we shed such MEANINGLESS labels, which can be so easily CORRUPTED; the sooner we can all engage in more meaningful dialogue (the last thing the Oligarchs want to see).
paxjds
...
written by paxjds, July 05, 2012
Jeff, is your useage of 'Oligarch' as in Stalin and his commie thugs, or Hitler and SS. Both were "Socialist". Gerald Celente talks about Fascism currently taking over everthing, the merger of cronie government with bankers and corporate elites". I believe this process began with LBJ, and the American Republic(real democracy and capitalism) died 25 years ago
Your crash warning is duly noted. To bad most the people can't see the Tsunami just off shore.

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